We love to acknowledge financial journalists who really demonstrate an understanding of the underlying truths associated with high-quality and long-duration common stock investing. The latest on the subject of "high quality" came from a Marketwatch.com piece by Brett Arends called, "To beat the stock market, buy quality" on November 12th of 2013. The latest on long-duration common stock investing came from Samuel Lee on Morningstar.com in a piece called, "Warren Buffett and Time-Horizon Arbitrage." Arends argued, we believe correctly, that "high quality" produces alpha over long stretches of time. Here are a few snippets of Arends' thesis:
As I ponder this year's events with a notch-loosened belt after a belly-busting Thanksgiving gorging, I give thanks for my many blessings this year. Investors in the stock market have had quite a feast in 2013 as well, while pessimistic bears have gotten cooked. Just this month, stock indexes reached all-time record highs (16,000 for the Dow Jones Industrial average and 1,800 for the S&P 500). Even the tech-heavy NASDAQ index surpassed 4,000 – a level not seen since 1999. How does this translate in percentage terms? Here's what the stellar 2013 numbers looks like so far:
Take Me Out to the Stock Game). The tide has modestly turned in 2013 but as I've written over the last six months, investor skepticism has reigned supreme (see Most Hated Bull Market Ever & Investors Snore).With the Dow Jones Industrial Average approaching and now breaking the 16,000 level, there has been a lot of discussion about whether the stock market is an inflating bubble about to burst due to excessive price appreciation? The reality is a fear bubble exists...not a valuation bubble. This fear phenomenon became abundantly clear from 2008 – 2012 when $100s of billions flowed out of stocks into bonds and trillions in cash got stuffed under the mattress earning near 0% (see
The market makes most of its gains each year in its favorable season of approximately October to May. A separate positive influence is the Federal Reserve when it's providing easy money and low interest rates in an effort to revive a flagging economy.
Those individual influences are so consistent they've been memorialized in long time market maxims 'Sell in May and Go Away' (to come back November 1), and 'Don't Fight the Fed'.
As contrarians, we frequently get questions about stocks like Gannett (GCI), Bank of America (BAC) and eBay (EBAY). To understand how excited we are to own these common stocks you need to understand how a long-duration common stock portfolio would benefit from the coming baby boom in the developed world. Thanks to wonderful research from The Bank Credit Analyst (BCA), we can understand the demographics of developed nations like the US. BCA concluded that a "baby boom" is coming in the US and in other developed nations. This research analyzed data from the Max Planck Institute of Demographics and makes five key statements: